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How to Withhold Using the Annualized Wages Method

Author: Alice Gilman

An employer must withhold federal income taxes from an employee's pay every pay period. The IRS has developed several methods an employer can use to fulfill this duty. An employer that uses automated payroll systems may find that the annualized wages method of withholding is more accurate than other withholding methods. To use the annualized wages method of withholding, an employer must use the IRS's percentage method withholding tables for an annual pay period.

All of the percentage method tables are issued before a calendar year ends and are to be used by an employer in the following year. The IRS publishes the percentage method tables in IRS Publication 15, Circular E, Employer's Tax Guide.